Not a Good Sign

 | Sep 03, 2013 | 4:13 PM EDT
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Although the indices managed to stay in positive territory, it isn't a good sign when the market opens at the highs and then sees selling pressure most of the day. It is holding above the recent lows but not seeing the sort of buying interest that helped produce so many V-shaped recoveries. In fact, it is struggling not to produce the second failed bounce in two weeks.

The one thing keeping the bulls upbeat is that breadth is decent and there is good speculative trading. More than 120 stocks made new highs and there is still good underlying support in key leaders like Netflix (NFLX), Amazon (AMZN), Google (GOOG), Tesla (TSLA) and Facebook (FB).

It's no big mystery what is causing the sloppy action. The Syria situation is still unfolding, interest rates are percolating higher and the tapering of bond buying seems to be a certainty. This market relied on the Fed to bolster it so often that it is a bit lost when quantitative easing isn't there to cure all ills.

The market is in a downtrend and struggling to hold support. While some stocks continue to act OK, the technical picture demands caution.

Have a good evening. I'll see you tomorrow

Sept. 03, 2013 | 1:15 PM EDT

Excuses, Excuses

  • Market players are looking for any excuse to sell.

The midday action is unimpressive. House Speaker John Boehner's comment that he would be supportive of President Obama's action against Syria took the wind out of the sails, but I have the feeling that market players are looking for excuses to sell rather than to buy. It is a different mood than we are used to during the first seven months of the year, when all we had were reasons to buy. Now with tapering looming and Syria in the headlines, the feeling is that money managers may be able to make up relative performance by avoiding losses rather than chasing strength.

We are the lows of the day and at this point of the day, that is not a favorable setup. One of the big changes we have had the last few weeks is late-day weakness, which is indicative of a struggling market.

The saving grace continues to be strength in select individual names. Despite the fact that the DJIA is red, Nasdaq breadth is still 2-to-1 positive. There continues to be speculative interest and it's a good thing because if we lose that, it will really be ugly.

I made a few buys this morning but I'm waiting until the final hour before deciding whether to make any additions. I'm seeing too many fades now, despite the positive breadth.

I don't believe Syria is going to have any lasting impact on the market but it is convenient excuse for selling. Unfortunately, it is going to linger all week and is taking the energy out of the action.

Sept. 03, 2013 | 8:40 AM EDT

Tune Into the Market

  • Stay focused on the micro and don't be misled by the macro.

Big gap-up opens to start the week are hard to trust as they invite profit-taking but, more often than not, they have held up well over the past year.  Rather than sell the gap it has generally been better to chase it, which is probably a function of having many underinvested bulls.

After taking some time off last week, I'm one of those underinvested bulls and I'm trying to put money to work and get back in tune with the market.  My stock of the week, Novadaq (NVDQ), is off to a good start and I'm nibbling at small positions in names like Anacor Pharma (ANAC), Century Casinos (CNTY), Galectin Therapeutics (GALT) and NQ Mobile (NQ).  I sold down some JinkoSolar (JKS) and Green Mountain Coffee (GMCR).

I'm not being too aggressive but I continue to be surprised by how well many individual stocks are acting. BioTelemetry (BEAT), which I've mentioned a number of times, has totally ignored the market pullback. Facebook (FB) is another and Tesla (TSLA) is running again.   There is good trading if we stay focused on the micro and don't get misled by the macro.

 Sept. 03, 2013 | 8:40 AM EDT

Back to Work

  • Stay vigilant and don't expect bounces to hold up well.

The supreme accomplishment is to blur the line between work and play. --Arnold J. Toynbee

Back to work. With summer vacations over and school starting, the first week of September tends to feel like the start of a new year. In addition, a slew of important news headlines are impacting sentiment and the indices are at key technical junctures.

A gap-up open to start the week isn't at all unusual and this morning we are seeing several mergers, strength in overseas markets -- China, in particular -- and less worry about the Syrian situation. That is producing a very strong open.

The fact that the indices acted technically weak on Friday and closed poorly is helping to feed the strength. The underinvested bulls and overaggressive bears are being forced to reposition just in case we keep on running.

The bears have been feeling a bit better lately as the bounce attempt failed last week and the indices were unable to gain any traction. We actually had a pretty normal bounce failure, which is unusual in this market as it always seems to come straight back up.

What has been most interesting about the market action the last couple weeks is how many momentum stocks have continued to perform well even though the indices look quite poor. If you have been following names such as Facebook (FB), Tesla (TSLA), Green Mountain Coffee Roasters (GMCR), Michael Kors (KORS) and JinkoSolar (JKS), you would think this market is acting extremely well. The hot money continues to aggressively pursue key names while the indices are in the worst shape they have been in so far this year.

Will the positive news flow shift the market back into an uptrend or is this just a routine oversold bounce that will fizzle out as trapped bulls sell and aggressive shorts reload? Betting against the market's ability to come back has been deadly but there is one big difference this time: The Fed is no longer giving us the same level of support.

The reason we had so many V-shaped bounces the last few years was that market players were always confident that the Fed would keep the cheap money flowing. That gave us unending support and once we started to bounce, the fear of being left out took hold.

Now the big question is not if there will be a tapering off of bond buying but when will it occur. Rates are working higher and concern about another political battle over spending is starting to grow. While China is showing some renewed strength, that isn't necessarily good news because it will push rates up and make the Fed more likely to taper its program.

I always advise that we let the price action be our guide and, right now, the indices are definitely in rough shape. The market is oversold enough and the mood is negative enough to deliver a pretty good bounce this morning. However, there is plenty of overhead resistance and you really have to wonder if another V-shaped move can develop.

As I noted, there is good action in many individual stocks, so if you want to trade there are opportunities. But we have to stay very vigilant and be ready for bounces to not hold up as well as they did earlier this year.

The good news is that the recent correction has shaken things up and given us some interesting trade setups. The bad news is that positive momentum has been fizzling and it is easy to be caught leaning the wrong way if we are too bullish.

Lots of folks are ready to go back to work and it should make for an interesting week as we deal with a number of cross-currents. 

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